Month: December 2015

The general consumer will be hard pressed when left to their own devices to shop on their own for their next mortgage, especially if they visit with one of the BIG banks. Typically they will talk about their most popular and profitable product, the 5 year FIXED rate mortgage. If you don’t know to ask for anything different, that is what they will recommend for you.

Working with a professional mortgage broker, the insight and value we can provide will help you not just get a mortgage, but build a personal home loan strategy to help you get farther ahead down the road, to better reflect you future needs and goals.

So here are the TOP 4 reasons why you need to look at a variable rate type mortgage product.

1) It’s always a cheaper interest rate: The current GAP between the Best in Market (BiM) fixed rate and BiM variable rate mortgage is a difference of = 0.60%— for the Average Canadian Mortgage Balance ($310K), that’s a savings of $159.57 that you don’t have to pay to the BANK for interest each month. Over the full 5 year term, you have saved over $9.5K in interest – should nothing change in the prime rate (breaks down to just $29.70/month for every $100K borrowed).

2) It’s always a better monthly P+I repayment distribution which helps YOU pay down your mortgage loan balance quicker, and in effect, again pay less interest to the banks.

So – which product’s monthly payment do YOU want to pay for principal? 59.32% of the lower payment’s monthly amount to principal or 51.15% of the higher payment’s monthly amount to principal?

3) More flexible contract terms, and cheaper to get out of if you need to. To break this type of mortgage contract the penalty calculations are SIMPLE– just 3 months interest calculated on the balance remaining, for the term remaining.

The average Canadian will do something with their contracts after the 3 yr mark so if you owed $281K after 36months of this contract, then your penalty to break about $1,500.

Whereas the FIXED is a very complicated math equation, with fine print, and potential claw backs on the discounts given up from. In the opening contractual terms, you agreed to pay them the full interest of $38,612. After 36 months, you may have paid the majority of that to them, but they will want the rest to full term – it is this calculation that can be quite severe.

YOU can always do a SWITCH into the remaining term fixed as well, should you wish to take that route – with additional costs. Most VRMs are portable, meaning if you don’t need any new money for your next purchase. You can take that existing contract with you to your new property.

4) Banks are NOT going to increase your VRM payment severely…. MYTH— you will have a legal contract term outlining the math equations associated with the Bank of Canada overnight prime lending rate. Most banks have a similar prime. Right now, (as of the last announcement BoC announcement on September 19, 2015) prime is 2.50% and holding…. most internal bank prime rates are now 2.70%. The discount associated with their prime is what they are in control of for the mortgage variable rate offering… BUT once you sign your five year contract that math equation WILL NOT change in the term. The only thing that MAY change is the Federal Government’s Regulated BoC Prime lending rate, and that is capped to a max of a quarter of a point (0.25%) as to not trigger a negative effect in the larger economy. A 0.25% increase (or decrease as we have seen twice this year) for every $100K borrowed is just a change of $12.24/month, which is manageable. Most lenders take up to 90 days to do the administration to change your interest portion of your monthly payment, which gives you enough time to speak with your mortgage agent to help decide if you want to SWITCH to a fixed. (no costs to do that)

Since 2005, the Bank of Canada Rate hasn’t changed much. Back then, it was 2.50%, and lenders had same as their internal prime rate. The Federal Government promised to keep rates low, and from June 2007 to July 2009, they froze that rate to a ZERO increase. We have only seen two increases since then, bringing the prime up to 3.00%, and on December 2010, the Feds again froze the rate, which resulted in NO adjustments until January 2015, when they opted to DECREASE the rate by 0.25%, down to 2.75 and again a second decrease in July 2015 to where we are now. The September 19 announcement has said they will keep rates at a zero increase for some time to come.

Knowing it’s an election year, it’s not likely that the politicians are going to mess around with people’s money — they want their votes… and frankly after the election, whoever the new minister will be…. will take some time to get up to speed in their new duties of that portfolio… so don’t expect much change for the next year. This was reiterated by Dominion Lending Centres’ Chief Economist, Dr. Sherry Cooper, at our most recent conference.

Conclusion: Overall effect of using the variable rate contract is this:

More flexible product, with a lower monthly expected payment; better redistribution of that payment to principal, resulting in a lower end balance to renegotiate in five years time (should nothing happen to the Prime in that term) AND if you want to be conservative, and have a set payment for your household budget then… why not use the lower VRM product and make the FIXED payment.

EVERY additional dollar you put down per month – is now all principal – reducing our overall loan, and now reducing the overall interested they CAN charge you in term.

… or… better yet… why not set that monthly payment difference aside into a TSFA account, and once a year, make a decision to either invest it, or pay down your mortgage balance, or do both.

Working with Dominion Lending Centres is not just about shopping for the BEST rate… it’s understanding the variety of products that are offered, and how best they can assist you in your own goals.

Congratulations you have made it through one of the toughest financial times in your life. It feels good to have this under control and know there is a light at the end of the tunnel. I too have been down this road in 1998 and now I educate the RIGHT way to have a plan.

There is no shame in going through either a consumer proposal or bankruptcy. Life throws wrenches into our well laid out plans. This is why we have these financial resources to get us back on our feet. What is most important is that we don’t make the same mistakes again, really get to know how the mortgage and credit world works and use a mortgage planner along with your trustee or debt counsellor to have a plan of action!

There are no quick fixes or programs to get you back on track! Don’t get sold on some “swindler” taking advantage of your situation. There is a company out there that will loan you $2,500 that you pay back over 2 years and they report it to bureau for you. The cost – $900! That’s crazy and completely unnecessary.

Here are the Coles notes on what you need to know for those in consumer proposal. Remember, every situation is unique, so always have an experienced broker work with you:

You can refinance your home when in a consumer proposal and pay it out. You need more than 20% equity to do this. The sooner you pay it off, the faster it comes off your credit bureau.

If you are going with an INSURED mortgage (ie. 5-20% down) then you must be discharged from consumer proposal for two years and your credit has to be re-established.

Most lenders want the consumer proposal paid in full prior to mortgage approval. Very few will look your deal while in proposal.

Area dependent – Fort Mac or small rural communities are harder to get approvals.

We can use a bundled product strategy with a 1st mortgage to 80% LTV and 2nd mortgage to 90% to get your approval. Expensive, but works for many clients.

You want to plan to have some savings that are more than just your down payment if you are buying. Don’t be house rich and cash poor.

Sometimes we can use secondary credit like your car insurance, cell phone, or your rental payments to a landlord. If we can prove good repayment for the last couple years, we should be able to take it to a bank.

Also, you really need to ensure that, at the three year mark after you are done, that your consumer proposal is removed from credit bureau. I have seen someone refinance 2 years into their 5 year proposal and pay it out and forget to remove it from the bureau a year later, so it keeps hurting your score and years of damage for no reason.

How long does a consumer proposal stay on a credit report?

Once you enter into a consumer proposal, it will start reporting on both Equifax and TransUnion credit reports within 30 days. Depending on your consumer proposal agreement with creditors, you will be making payments in a consumer proposal generally between three to five years.

Consumer Proposal will stay on your credit report for 3 years from the date you are discharged (made your last payment) regardless if you are looking at your Equifax or TransUnion report.

Where do I start in building my credit again?

You can start rebuilding your credit as soon as you file your proposal. Bankruptcy is a bit different. You need to aim for TWO credit cards, open for TWO years, with an eventual available credit of $2500 each. Just get TWO that start reporting.

They are lending YOU money, so a good broker will need to explain your situation, who you are, why you had issues and what you have done to improve your situation. This is called the 5 C’s of credit. This is a method used by lenders to determine the credit worthiness of potential borrowers. The system weighs five characteristics of the borrower, attempting to gauge the chance of default or you being a chronic mismanager of debts.

Character – When lenders evaluate character, they look at stability — for example, how long you’ve lived at your current address, how long you’ve been in your current job, and whether you have a good record of paying your bills on time and in full. If you want a loan for your business, the lender may consider your experience and track record in your business and industry to evaluate how trustworthy you are to repay.

Capacity – refers to considering your other debts and expenses when determining your ability to repay the loan. Creditors evaluate your debt-to-income ratio, that is, how much you owe compared to how much you earn. The lower your ratio, the more confident creditors will be in your capacity to repay the money you borrow.

Capital – refers to your net worth — the value of your assets minus your liabilities. In simple terms, how much you own (for example, car, real estate, cash, and investments) minus how much you owe.

Collateral – refers to any asset of a borrower (for example, a home) that a lender has a right to take ownership of and use to pay the debt if the borrower is unable to make the loan payments as agreed. Some lenders may require a guarantee in addition to collateral. A guarantee means that another person signs a document promising to repay the loan if you can’t.

Conditions – Lenders consider a number of outside circumstances that may affect the borrower’s financial situation and ability to repay, for example what’s happening in the local economy. If the borrower is a business, the lender may evaluate the financial health of the borrower’s industry, their local market, and competition.

It all starts with the planning the day you decide to file for a consumer proposal. If you are finding you are starting to fall behind in payments or considering a consumer proposal call us at Dominion Lending Centres – we may be able to help.

Someone recently asked if I could describe the various penalties associated with breaking a mortgage prior to the maturity date.

Generally speaking, lenders usually use a 3 month interest penalty, or an Interest Rate Differential penalty (IRD). The penalty for breaking a fixed rate mortgage is usually the greater of 3 months interest, or the IRD (in some cases when it is very close to maturity, the 3 month interest penalty will be higher, but otherwise the IRD penalty is much higher than 3 months interest).

Variable rate mortgages usually use the 3 month interest penalty. Some variable mortgages offering lower rates, however, will use an IRD or, in some instances, are closed (you cannot break them) without a bona fide sale of the property. This is also the case for some niche fixed rate mortgage products.

It is in the IRD penalty where there can be vast differences from one lender to another.

The IRD penalty is based on 3 things:

The principal balance of the mortgage at the time you break it, and

The difference in the interest rate of the original mortgage and the rate the lender would charge for the term closest to the remaining time on the mortgage (for instance, if there are 21 months left, the lender will most likely use their 2 year term interest rate as the comparison rate).

The number of months remaining in the mortgage term.

If the lender uses the discount off the posted rate in the equation, it widens the difference with the comparison rate. This increases the IRD penalty. Let’s take these 2 examples on a 5 year fixed mortgage:

Let’s say one lender uses posted rates to calculate their IRD (and many lenders do). The differential here is 1.6%. The penalty would be $8,800.

Now, as a comparison, another lender uses only contract, or effective rates, to calculate the IRD (and there are many lenders who do). Therefore, the discount is not applicable, and the comparison rate for a 2 year (using today’s contract rates) would be around 2.19%. The differential would be 0.5% and the penalty would be $2,750.

In each case, the 3 month interest penalty would be $2,018.

One strategy the big banks have used over the past few years is to register liens on homes as collateral charge loans, rather than as mortgages. The advantages of this is that it allows the buyer to refinance at minimal, or no cost any time during their term. The caveat is, because it is a collateral charge loan rather than a mortgage, the client cannot leave that financial institution, even at the maturity date, and needs the services of a lawyer or title insurance company to break the loan agreement with that financial institution. This costs several hundred dollars. The financial institutions using collateral charge loans are aware of this cost and can afford to offer an interest rate at renewal that is a higher one, closer to a posted rate, rather than the discounted rate offered by their competitors, since the client does not want to incur this extra cost.

So, when mortgage shopping, it is always good to look at not only the interest rate, but also:

Confirm if there are prepayment privileges, or if it is a totally closed mortgage (except for a bona fide sale),

How that lender calculates their IRD penalties when breaking a mortgage,

Their pre-payment privileges (could be 15%, 20%, or 25%),

Whether the interest is calculated monthly or semi-annually (this can mean up to a few hundred dollars per year you are paying extra if it is monthly)

If you have any questions, please contact me at Dominion Lending Centres at anytime.

Saving for a down payment is often one of the biggest challenges facing young people looking to break into the real estate market. The source of your down payment could come from your own savings, a gift from a family member, your RRSP if you’re a first time home buyer or from the proceeds of selling your current home.

No matter where your down payment comes from, one thing that is for certain is your lender will be verifying your down payment prior to full approval. It’s required by all lenders to protect against fraud and to prove that you are not borrowing your down payment, which can change your lending ratios and your ability to repay your mortgage.

Documents You Will Need To Show When Verifying Your Down Payment

1. Own Savings/Investments: If you’ve saved enough money for your down payment, congratulations! What your lender will want to see is a 3 month history of any source accounts used for your down-payment such as your savings account, TFSA (Tax Free Savings Account) or Investment account.

Your statement will need to clearly show your name and your account number. Any large deposits outside of your normal contributions will need to be explained i.e. you sold your car and deposited $12,000 or you received your bonus from work. If you have transferred money from one account to another you will need to show a record of the money leaving one account and arriving in the other. The lenders want to see a paper trail of where the money came from and how it got in your account. This is mainly to combat money laundering and fraud.

2. Gifted Down Payment: Especially in the pricey Metro Vancouver and Toronto real estate markets, the bank of Mom and Dad is becoming a more popular source of down payments for young home buyers. You will need a signed gift letter from your family member that states the down-payment is indeed a gift and no repayment is required on the funds.

Be prepared to show the funds on deposit in your account no later than 15 days prior to closing. Again, the lender wants to see a transaction record. i.e. $25,000 from Mom’s account transferred to yours and a record of the $25,000 landing in your account. Documents must show account number and name.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $25,000 from your Registered Retirement Savings Plan (RRSP) for your down payment. To see if you qualify for the Home Buyer’s Plan to use your RRSP’s as a down payment visit here. You will need to complete a Form T1036 to withdraw your funds without penalty.

Verifying your down payment from your RRSP is just like verifying from your savings/investment accounts. You will need to show a 3 month history via your account statements with your name and account number on them. Funds must have been in your account for 90 days.

4. Proceeds From Selling Your Existing Home: If your down payment is coming from the proceeds of selling your current home then you will need to show your lender a fully executed purchase and sale agreement between you and the buyer of your home. If you have an outstanding mortgage on the property, be prepared to provide an up-to-date mortgage statement as well.

5. Money From Outside Of Canada: Using funds from outside of Canada is acceptable but be prepared to have the money on deposit in a Canadian financial institution at least 30 days before your expected closing date. Verifying your down payment from overseas will also require that you provide a 90 day history of your source account.

No matter what the source is, verifying your down payment will require you to show documentation of where the money originated from and be ready to explain any large deposits. Making regular contributions into your savings or investment accounts will help develop a pattern of deposits and avoid any red flags. Don’t stockpile your cash and make large lump-sum deposits.

Most lenders will want to see that you have 1.5% of the purchase price on deposit as well to cover your closing cost. If you buy a home for $650,000 you will need a minimum of 5% down ($32,500) and another $9,750 (1.5%), for your closing cost. You will need to show a total of $42,250 available on deposit.

Thanks for reading and if you need more information, please don’t hesitate to contact Dominion Lending Centres.

Most banks boast a higher than 90% renewal rate on their mortgages (some even higher than 95%). Since it costs them a lot more money to acquire a new client vs. keeping an existing one, banks love the savings of a simple renewal. So you would think that they would offer you the best rate up front on your renewal as it’ll save them money in the long run? Well…not necessarily.

With renewal rates being as high as they are, there is not much incentive for banks to give their clients the best rates up front. They know that most people will stay as they know it’s easier to just sign a form as opposed to applying for a mortgage at another bank. Hence the dreaded renewal letter that gets mailed out automatically prior to your renewal date.

The banks would love nothing more than for you to just pick the term, sign the document, and send it back to them. It costs them relatively little to process it and they don’t have to follow up with you after that (other than sending you a new copy of the agreement).

Since the renewal documents are printed automatically (and yes they may include a “preferred rate” which makes it even more tempting to sign) they don’t factor in any rate specials that may occur after they’re printed.

Recently a client’s mortgage was coming up for renewal and they received the automatic renewal letter. Just calling the 1-800 number saved them an extra .10%, which on a $500,000 mortgage was an extra $500 per year in interest. Not bad for a 5 min phone call.

There are also some important questions to answer:

-are you planning on selling your home anytime over the next 5 years?

-do you need to access any equity from your home for renovations, children’s education, etc.

-what are your long term goals with the property?

These are important questions to ask as they help us suggest the right product for you.

So it’s important to treat your renewal as if you’re obtaining a new mortgage and spend some time researching your options. When I worked at the bank I was always shocked at the number of people that just signed the form and sent it back.

That’s why (in addition to the financial institution where your mortgage is now) you need to contact your Dominion Lending Centres Mortgage Broker and have them give you an unbiased view of which mortgage product is right for you, as they have access to hundreds of different financial institutions.

Okay, so here we are… we have worked together to secure financing for your mortgage. You are getting a great rate, favourable terms that meet your mortgage goals, the lender is satisfied with all the supporting documents, we are broker complete, and the only thing left to do is wait for the day the lawyers advance the funds for the mortgage.

Here is a list of things you should NEVER do in the time between your financing complete date (when everything is setup and looks good) and your closing date (the day the lender actually advances funds).

Never make changes to your financial situation without first consulting me. Changes to your financial situation before your mortgage closes could actually cause your mortgage to be declined.

So without delay, here are the 10 Don’ts of Mortgage Closing… inspired by real life situations.

1. Don’t quit your job.

This might sound obvious, but if you quit your job we will have to report this change in employment status to the lender. From there you will be required to support your mortgage application with your new employment details. Even if you have taken on a new job that pays twice as much in the same industry, there still might be a probationary period and the lender might not feel comfortable with proceeding.

If you are thinking of making changes to your employment status… contact me first, it might be alright to proceed, but then again it might just be best to wait until your mortgage closes! Let’s talk it out.

2. Don’t do anything that would reduce your income.

Kind of like point one, don’t change your status at your existing employer. Getting a raise is fine, but dropping from Full Time to Part Time status is not a good idea. The reduced income will change your debt service ratios on your application and you might not qualify.

3. Don’t apply for new credit.

I realize that you are excited to get your new house, especially if this is your first house, however now is not the time to go shopping on credit or take out new credit cards. So if you find yourself at the Brick, shopping for new furniture and they want you to finance your purchase right now… don’t. By applying for new credit and taking out new credit, you can jeopardize your mortgage.

4. Don’t get rid of existing credit.

Okay, in the same way that it’s not a good idea to take on new credit, it’s best not to close any existing credit either. The lender has agreed to lend you the money for a mortgage based on your current financial situation and this includes the strength of your credit profile. Mortgage lenders and insurers have a minimum credit profile required to lend you money. If you close active accounts, you could fall into an unacceptable credit situation.

5. Don’t co-sign for a loan or mortgage for someone else.

You may have the best intentions in the world, but if you co-sign for any type of debt for someone else, you are 100% responsible for the full payments incurred on that loan. This extra debt is added to your expenses and may throw your ratios out of line.

6. Don’t stop paying your bills.

Although this is still good advice for people purchasing homes, it is more often an issue in a refinance situation. If we are just waiting on the proceeds of a refinance in order to consolidate some of your debts, you must continue making your payments as scheduled. If you choose not to make your payments, it will reflect on your credit bureau and it could impact your ability to get your mortgage. Best advice is to continue making all your payments until the refinance has gone through and your balances have been brought to zero.

7. Don’t spend your closing costs.

Typically the lender wants to see you with 1.5% saved up to cover closing costs… this money is used to cover the expense of closing your mortgage, like paying your lawyer for their services. You might think that because you shouldn’t take out new credit to buy furniture, you can use this money instead. Bad idea. If you don’t pay the lawyer… you aren’t getting your house, and the furniture will have to be delivered curb side. And it’s cold in Canada!

8. Don’t change your real estate purchase contract.

Often times when you are purchasing a property there will be things that show up after the fact on an inspection and you might want to make changes to the contract. Although not a huge deal, it can make a difference for financing. So if financing is complete, it is best practice to check with me before you go and make any changes to the purchase contract.

9. Don’t list your property for sale.

If we have set up a refinance for your property and your goal is to eventually sell it… wait until the funds have been advanced before listing it. Why would a lender want to lend you money on a mortgage when you are clearly going to sell right away (even if we arranged a short term)?

Although this point is least likely to impact the approval of your mortgage status, it is frustrating when people, who don’t have the first clue about your unique situation, give you unsolicited advice about what you should do with your mortgage, making you second guess yourself.

Now, if you have any questions at all, I am more than happy to discuss them with you. I am a mortgage professional and I help my Dominion Lending Centres clients finance property every day. I know the unique in’s and out’s, do’s and don’ts of mortgages. Placing a lot of value on unsolicited mortgage advice from a non-licensed person doesn’t make a lot of sense and might lead you to make some of the mistakes as listed in the 9 previous points!

So in summary, the only thing you should do while you are waiting for the advance of your mortgage funds is to continue living your life like you have been living it! Keep going to work and paying your bills on time!

Now… what about after your mortgage has funded?

You are now free to do whatever you like! Go ahead… quit your job, go to part time status, apply for new credit to buy a couch and 78″ TV, close your credit cards, co-sign for a mortgage, sell your place, or soak in as much unsolicited advice as you want! It’s up to you!

But just make sure your mortgage has funded first.

Also it is good to note, if you do quit your job, make sure you have enough cash on hand to continue making your mortgage payments! The funny thing about mortgages is, if you don’t make your payments, the lender will take your property and sell it to someone else and you will be left on that curbside couch.

Obviously, if you have any questions, please get in touch with us here at Dominion Lending Centres!

I receive calls every month from people who want to know how to qualify for a mortgage because they were declined by their bank. In many cases I can help them and in some cases they have to wait – but we identify what they need to do to get in a better situation to qualify.

Here are the top 5 reasons why people don’t qualify for a mortgage with their bank and come to see an independent mortgage specialist.

#5 Lack of a Down Payment or Equity

With the end of cash-back mortgages offered by the banks, borrowers now have to come up with the down payment on their own. They can receive it as a gift from a family member – but no more cash-back from the lender used for down payments. Minimum down payment is 5% for the purchase of an owner-occupied home or 20% for a rental property. Minimum 20% equity in the home if it is a refinance. This will help you qualify for a mortgage.

#4 Insufficient Income

With the high price of homes in the Vancouver area, sometimes people simply don’t earn enough money to manage a mortgage payment, property taxes and strata fees along with existing consumer debt and still have a life. For some home buyers, the only other option is to access more money for a down payment (gifted) or try to purchase a home with suite income or look at alternative lenders who accept room and board and other sources of income to help you qualify for a mortgage. In some instances, home buyers will look for someone else to go on title to add income to the application.

#3 New Mortgage Rules

For those with less than 20% down payment, the new mortgage rules are adjusted to the debt servicing ratios and amortization for borrowers. The new rules for debt servicing apply to those with good credit scores and allow for a max of 39% (gross debt servicing – GDS) of gross monthly income to cover the mortgage payments, property taxes and 50% of the strata fee. In addition a max of 44% (total debt servicing – TDS) of gross monthly income is allowed to cover the same and other consumer debts such as loans, credit cards and lines of credit. The maximum amortization was also reduced from 30 years to 25 years – effectively tightening qualification for borrowers equivalent to a 1% interest rate hike.

#2 Credit Issues

Some people don’t realize if they are late on credit card payments, their mortgage or loan payments the lender will update the credit bureau agencies and the late payments will reflect on their credit report, lowering their credit score. Other items can also effect credit scores such as a collection (if you didn’t pay that parking ticket or fitness membership fee they can send to a collection agency) and those marks on your credit report make your score drop like a rock. Going over your credit card limit, and applying for credit often requiring your credit report to be pulled by the bank, auto dealership and credit card companies will lower your score. Finally, consumer proposal and bankruptcy will greatly impact your score, which can stay on your report for up to 7 years if real estate was involved as is the case with bankruptcy.

#1 Too Much Debt

There are a growing number of consumers doing – well – too much consuming. Credit card debt is on the rise and over use of lines of credit are putting some people in a debt overload situation. Some pre-home-buyers go out and purchase that amazing new truck, along with a large monthly payment, which pushes their total debt servicing (TDS) ratio over the limit. Nice new truck – no home with a garage. Some home owners have so much consumer debt that they are unable to refinance their home to consolidate the mortgage and the credit card debt because the amount exceeds the maximum loan to value allowable (currently 80% of the value of the home) and if housing prices stabilize or drop in some areas – this makes it more difficult for home owners to qualify for that new mortgage and lower payments. Paying off your debt will help you qualify for a mortgage.

Do you want more information for your next mortgage? Contact any of us here at Dominion Lending Centres – we’re here to help!

1. Make a double mortgage payment whenever you can. Doing this once a year can shave over 4 years off the mortgage! Sometimes you can skip a payment later on too…if you really, really need to. Try not to. If your payment is $2,000 a month, four years of no payments is $96,000!!

2. Increase frequency of payment. For Example going from monthly to bi-weekly accelerated can shave over three years off your mortgage! $2,000, three years of no payments is $72,000!!

3. Increase your payment. For example a one-time 10% increase can shave 4 years off the mortgage. That’s $96,000! Imagine if you bumped the payment 10% every year from the get go!!! You would be mortgage free in 13 years! Start to finish! Can’t do it? How about 5% every year….you would be mortgage free in 18 years! How about increasing the payment by the amount of your annual raise?

4. Lump sum payments…same idea…mortgage is gone way faster! Even just one payment a year equivalent to 1 monthly payment will give you similar results as #2 above! How about using your annual work bonus?

5. Renegotiate whenever rates drop to save interest and pay mortgage faster! Generally a good idea however *Caution* get independent professional advice (a cost benefit analysis) to make sure it makes sense for you at that time. I can help. A 1% reduction on a $300,000 mortgage will save $250 a month…times 5 years…that’s $15,000!!

6. Keep your credit rating high for best rate. Always pay on time. Never let payments slip past their due date. Always keep balances low in relation to credit limits on credit cards, lines of credit, etc. 50% or less is best even if you pay the balances in full every month. What generally reports to the credit bureau is the statement balance each month. So if your credit limit is $3000 and you are running $3000 a month through the card each month (to collect all those points you never spend or can’t use in blackout periods) and paying in full, it will look like you are maxing out your credit limit and your credit score will drop accordingly.

7. Increase your mortgage! Yeah I know sounds backwards! Do it to roll in your credit cards, line of credit, car loan etc for a better rate and a set payment plan. Oh you say you don’t want to extend the repayment period of that stuff by rolling it into your mortgage or you have a low or promo rate credit card (those never end well) I agree! Then keep the total payment amount the same but pay it in one neat monthly payment to the increased mortgage.

8. Make an RRSP contribution and use the refund to pay down your mortgage.

9. Go variable rate with your mortgage but keep payments as if fixed rate. Variable rates usually win out over fixed rates. By paying a higher payment you will pay off the mortgage faster. It’s also a buffer in case the rate rises above the fixed rate for short periods of time. *Caution* variable rates are not for everyone. Get independent professional advice to find out what is best for you. I can help!

10. Take your mortgage with you when you change properties to avoid penalty or higher rate on a new mortgage. This is called “porting”. Make sure that your mortgage has this feature. It is not widely known and could save you a ton of dough.

11. Set up auto savings every paycheque, even $10, when it reaches the amount of one mortgage payment, apply it to the mortgage. This concept goes nicely with #4 above.

12. Unhook from the money drip…stop paying with your fancy points credit or debit card. Way too easy to overspend! Go old school, go off the grid…PAY CASH, it works!

13. Don’t ever buy on layaway, you know, six months don’t pay schemes. You think…No problem I’ll just pay it in six months, it will be okay. Yeah right!

14. Downsize your house. Two good friends and clients of mine, having followed many of the tips here, are in great shape except they have a six bedroom house! Two people, six bed house – go figure! They are nearly debt free so no biggy, but can you say the same? Circumstances change, make the adjustments along the way!

15. Don’t want to move? Convert the basement/rooms to rental and use the income to pay down debt.

16. Convert your mortgage to tax deductible. If you are self-employed, own rental property or have investments, this is likely possible. I won’t go into details here, just ask me how.

17. Have a payment priority.

18. Pay off the highest interest rate first.

19. If you have tax deductible loans, pay them off last, slowest. Pay the non-tax deductible loans first and fastest.

23. Buying a car? Finance it if you have to, don’t lease! *Exception* If you are self-employed it might make sense.

24. You have $20,000 in a secret bank account for a rainy day fund and $20,000 owing on a line of credit. Seriously? The bank account is paying you next to nothing (which is taxable income to boot) and the line of credit rate is way higher (and not tax deductible). You know what to do. You can keep the line of credit open and on standby for rainy day funds. Make it the secret line of credit that you have but never use.

25. Give your Banker more money. No really. Keep enough in your chequing account to meet the minimum requirement to waive your service charges. My bank charges $10 a month for 25 transactions and nothing, zero, zilch, zip if I keep $2,500 in the account. Let’s see $10 x 12 is $120 a year to pay off debt. I’d have to earn 5% with the $2,500 in my savings account to come out ahead. No brainer here. Oh yeah, if you need more than 25 transactions a month…see #12 above.

26. #26? BONUS TIP and MOST IMPORTANT. Let’s face it, you’re not the Government and you’re not a Bank, you can’t run deficits forever and you won’t get a bailout….stop procrastinating already! See 1 through 24 above and take action now!

Sidenote: *Caution* beware of some too good to be true ultra-low rate mortgages. These “no frills” mortgages are often loaded with restrictions like pre-payment limitations, fully-closed terms, stripped-out features, or unusual penalties. You really need to compare product to product. If you’re not looking at what you’re giving up, you may regret it in the future. This alone could prevent you from taking advantage of tips #1, 2, 3, 4, 5, 7, 8, 9, 10, 14, 16 and 22!

Buying your first home is often the largest financial commitment you will have made and just coming up with the down payment is a difficult task for many! Then there are the legal fees, property transfer fees, disbursements and all those other costs that can really add up, creating a huge dent in your finances!Buying your first home is often the largest financial commitment you will have made and just coming up with the down payment is a difficult task for many! Then there are the legal fees, property transfer fees, disbursements and all those other costs that can really add up, creating a huge dent in your finances!

To help offset these costs for first time home buyers, the Federal Government created the First Time Home Buyers Tax Credit (HBTC) to assist home buyers with the costs associated with purchasing their home.

Who is Eligible?

The HBTC applies to first time homebuyers who intend to occupy the home as their principal residence no later than one year after acquisition. To be considered, a first time home buyer, neither the individual nor the individual’s spouse or common law partner will have owned another home in the year of the home purchase or in the four preceding calendar years.

Special rules apply for the purchase of homes that are more accessible or better suited to the personal needs and care of an individual who is eligible for the Disability Tax Credit. In these cases, the HBTC can be claimed even if the first time homebuyer criteria is not met.

How Much is the Tax Credit?

The $5,000 non-refundable tax credit provides up to $750 of federal tax relief. It is based on a down payment of $5,000 and is calculated by multiplying the lowest personal income tax rate (15%) x $5,000 = $750.

The individual’s spouse or common law partner may claim any unused portion of an individuals HBTC. When two or more eligible individuals jointly purchase the home, the credit may be shared but cannot exceed $750.

If only one individual is eligible to claim the tax credit, the percentage of that individuals ownership of the home can be used. ie. 50% of $750= $375

Also note, it is up to the applicant to ensure that they can provide documentation for the purchase transaction and that they meet the applicable eligibility requirements, should the CRA require proof.

If a buyer can’t obtain a mortgage due to poor credit, employment history, lack of down payment or income — most lenders will consider lending if there is someone to act as co-signor or guarantor for a mortgage. The two options provide different requirements.

Co-signer or guarantor for a mortgage, which is best? People often use the terms guarantor and co-signer interchangeably, but they have very different responsibilities and rights. A co-signor is basically a co-owner – he/she is registered on the title and is equally responsible for payments (although it’s often a given that the co-signor will not make the payments). A guarantor, on the other hand, personally guarantees payments will be made if the original applicant defaults, but he has no claim to the property because he/she is not on title.

Lenders require a co-signor or guarantor for a mortgage for different reasons. A co-signor is used when you need to support income. If the original applicant’s qualifying ratio doesn’t meet the lender’s standards, a co-signor is required to bridge the income gap. A co-signor, because their name is also on the title, must sign all of the mortgage documents and can expect to remain on title until the applicant qualifies for the mortgage on his or her own. Or, in the case of two spouses, the co-signor might remain on title indefinitely. Keep in mind that removing someone from the title involves legal fees.

A guarantor is usually called upon if the applicant qualifies by income, but has a slight credit blemish or has yet to establish credit. It’s also an option for couples where one spouse is an entrepreneur and they don’t want to risk losing the house should the business go bankrupt — they simply keep that person’s name off the mortgage.

Guidance for guarantors A guarantor has to be stronger financially than a co-signor because they promise to carry the entire debt should the homeowner default. As a result, guarantors are carefully scrutinized, undergo a credit check and must also disclose assets, liabilities and income.

Therefore, it’s important for guarantors to know all of the circumstances of the person they’re acting for and be confident the applicant will make the payments. Before signing, all guarantors should seek advice from a lawyer who is independent of the real estate transaction.

It’s also smart to secure creditor insurance in case things go wrong. The applicant and guarantor should discuss collateral or come up with a repayment plan up front should the guarantor be called on to cover the debt.

To learn more, listen to my radio interview on CKPM– click the link below:

What happens when you co-sign or become guarantor on a mortgage?

When a guarantor wants out Some lenders offer early release policies that free the guarantor from obligation (usually after 12 months) if the borrower is up-to-date with payments and has established good credit. Sometimes a guarantor can remain under obligation for several years.

Before agreeing to act on behalf of an applicant, guarantors need to evaluate the time commitment they’re willing to make. If, for example, they want to buy their own home in a few years or take on any major debt, such as a car or boat, they may not qualify because of their guarantor status.

Regardless of whether you wish to be a co-signor or guarantor, for a mortgage you should always consult your mortgage professional at Dominion Lending Centres and a lawyer before acting.